REPO RATE

A repo rate (known as repurchase

options) is a rate at which a central
bank of a country lends money to
the commercial banks to cover the
shortage of funds
It is a tool used to control inflation in a
country.

The rate is increased when there is

inflation as a way to discourage the
commercial banks from borrowing,
leading to less money being supplied by
commercial banks in the economy
In India RBI, being the central bank,
controls the repo rate. RBI has hiked
the repo rate by 50basis points(bps) to
4.90 percent since the current inflation
is above the bank’s tolerance limit.
How does repo rate affect inflation
Pros:

increases interests for Fixed deposits,

Post office savings account, Savings
accounts

cons:

Home loans, education loans, business

loans, etc all get affected by the increase
in rate.

Due to expensive business loans, the

business either shuts down or puts a
freeze on hiring which leads to
unemployment
The RBI's second hike in rate in
these last months caused a significant
decline in the NIFTY 50 and BSE S&P
Sensex, two Indian indices

consumer price index (CPI)-based

inflation, which the RBI considers when
determining its monetary policy, surged
to an 8-year high of 7.79% in April